Economics and Incentives Matter Explain

Topics: Economics, Market failure, Information asymmetry Pages: 2 (322 words) Published: February 18, 2014
Chapter 1: The Power of Markets
What are the two basic assumptions that economists make about individuals and firms?

What is the role and significance of prices in the market economy?

What’s so great about a market economy anyway?

Chapter 2: Incentives Matter
Explain how each of the following relates to efficient outcomes in a market economy: Adverse selection, “perverse incentives”, principal agent problem, and the prisoner’s dilemma.

Chapter 3: Government and the Economy
In your own words, explain what an externality is.

Besides addressing externalities, what other important and beneficial roles does government play in our market economy?

Chapter 4: Government and the Economy II
Whatare the main reasons why government should only take a limitedrole in a market economy?

Chapter 5: Economicsof Information
Wheelan explains that basic economic modelsassumethat all parties have “perfect information.” How does “informational asymmetry” undermine our marketeconomy?

Explain the role “branding” plays in our economy.

Chapter 6: Productivity and Human Capital
AfterreadingWheelan’s argument, do you agree that Bill Gates should be so much richer than you?

Evaluate thefollowing statement from p.143: “We should not care about the gap between rich and poor as long as everybody is living better.”

Chapter 7: Financial Markets
Explain the four simple needs that all financial tools are based on.

Explain how get rich quick schemes violate the most basic principles of economics.

Whatadvice about investing in the stock market did you find most interesting and/or useful?

Chapter 8: The Power of Organized Interests
Why does it pay to be small if you are an interest group? Cite an example.

Explain “creative destruction”. How does this impact policy?

Chapter 9: Keeping Score
Why is a nation’s GDP a good measure of its economic well being and progress?

Whyis a nation’s GDP a poor measure of...
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